Yields on The Bond Buyer's tax-exempt bond indexes reported modest declines this week, pushing the daily Municipal Bond Index's yield to maturity to a record low and the weekly indexes to their lowest levels in five months.
Bond prices rose 3/8 to 3/4 point on average during the week, despite several economic indicators pointing to an improving economy, as investors exhibited a hearty appetite for new issues.
The average yield to maturity of the 40 bonds in the daily Municipal Bond Index fell seven basis points, to 6.54% from 6.61%. This is a record low yield to maturity, which The Bond Buyer began calculating Jan. 1, 1985.
The 20-bond index of general obligation bonds declined six basis points, to 6.46% from 6.52% a week ago. The 11-bond index was down six basis points, as well, to 6.35% from 6.41%. The two GO indexes reached their lowest levels since Jan. 9, when both hit 12-year lows of 6.40% for the 20-bond and 6.28% for the 11-bond.
The 30-year revenue bond index's yield dropped seven basis points, to 6.62% from 6.69%, to reach its lowest level since Jan. 9, when it reached an all-time low of 6.53%. The revenue bond index began on Sept. 20, 1979.
The U.S. governments market kept pace, as the 30-year Treasury bond's yield declined eight basis points, to 7.79% from 7.87%.
In the short-term note sector, The Bond Buyer's one-year note index declined eight basis points, to 3.20% from 3.28% last week. It is now at its lowest level since Feb. 19, when it was 3.13%.
The municipal bond market started on this week's roll last Friday, when consumer prices posted a small 0.1% increase for May. With inflation still under control, traders reasoned that the Federal Reserve System would feel greater freedom to push interest rates lower and give the economy a boost.
That optimism persisted throughout the week, even though the Fed never made its move. The market shrugged off a handful of economic reports that showed greater-than-expected strength in the economy -- housing starts rising 11% in May, to a seasonally adjusted annual rate of 1.23 million units, industrial production increasing 6%, industrial capacity utilization rising 0.3 percentage points, to 79.0%, and the depiction of a modest recovery in the Fed's so-called beige book.
The market continued to have no problem digesting a bumper crop of new issues. A 1992 high of $6.5 billion of bonds and notes were marketed last week, followed by more than $4.8 billion of debt this week, but investors gave the new issues a warm reception.
This week's biggest sale, $1.5 billion of Los Angeles County tax and revenue anticipation notes, were repriced by a Morgan Stanley & Co. syndicate to reduce reoffering yields five to 10 basis points. A $230 million issue of Virgin Islands Public Finance Authority bonds was repriced to trim yields 10 to 12 1/2 basis points.
Secondary market trading was lackluster for most of the week, as investors and dealers focused on the new issues, but the primary market's price rally also spilled over there. "People are of a constructive mind," one trader said. "A lot of bonds have left the Street, and the tone is not as heavy as it was at the end of last week."